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The end of my VC career Stefan Glaenzer quits Passion Capital to clear way for third fund

April 7, 2018

Stefan Glaenzer, the prominent European VC and former chairman of Last.fm and founder of Ricardo.de, has quit his role as Partner at Passion Capital. He co-founded the London-based early-stage firm seven years ago with partners Eileen Burbidge and Robert Dighero.

The decision to resign, which the firm’s staff and Limited Partners were informed of last Thursday, is linked to Glaenzer’s arrest and subsequent conviction in 2012 when he pleaded guilty to sexually assaulting a woman on the London Underground Tube network. He claimed to be high on cannabis at the time and was given a suspended prison sentence and a fine, banned from using the Tube for 18 months, and placed on the U.K.’s sex offender registry.

Passion Capital is in the midst of fundraising and Glaenzer’s conviction has become an obstacle to some LPs backing a third fund. This contrasts with 2015 when the London VC firm successfully raised £45 million for fund two, including £17.5 million coming from the U.K. taxpayer via the British Business Bank. In 2012, following Glaenzer’s sexual assault conviction, existing LPs and Passion Capital partners also unanimously voted that he should remain in his role at the firm.

In an interview offered to TechCrunch — which at first I was hesitant to accept until it became clear there was a legitimate news angle — I sat down with Glaenzer to discuss the events that led to his resignation and put questions to him that have persisted over the years within the London investment and technology startup community and have become ever louder following high-profile cases of alleged sexual harassment in Silicon Valley and the wider #metoo movement.

They include why he wasn’t fired from his job at the time of the sexual assault conviction, why he didn’t resign earlier, and how Passion Capital and its investors dealt internally with the incident. I also wanted to understand what changed in 2018. The only red line was that he didn’t want to talk about how it impacted his private life and family.

German-born Glaenzer — a multimillionaire twice over through the sale of Ricardo.de to QXL in 2000 and Last.fm to CBS in 2007 — says Thursday 16th of November 2017 was the day he “instinctively knew” his VC career was over. He and Passion’s two other partners, Burbidge and Dighero, were meeting with an institutional investor who had been lined up as a cornerstone LP in fund three. Quite far along in the due diligence process and with the outcome looking positive, the conference room had been booked for 2.5 hours in preparation for an intense final round of negotiations. Thirty minutes in, however, the meeting was over. The operational team had passed the deal to the investment firm’s compliance department and Glaenzer had turned from key person to “headline risk”.

“It was clear, we banked on them as our cornerstone, everything was positive, and after four or five months they said no and we knew we needed to restart,” he says. “I knew that this chapter was over”.

What that “headline risk” is was never explicitly stated, says Glaenzer, who didn’t think to ask, but it seems almost certainly the reputational damage that could be inflicted on any investor associated with Passion Capital if Glaenzer remained involved and should his conviction resurface in the media. Optics matter more than ever in 2018.

That is precisely what happened two months prior to the investor meeting when Bloomberg news ran a story asking: ‘Will Britain Keep Investing in a Sex Offender’s Venture Fund?’. The article placed Glaenzer’s conviction in the context of a wider debate about the role LPs should play in policing bad behaviour by VCs, even if his conviction was for something that happened outside of work.

“In the end the institution made the right call,” says Glaenzer. “I think, luckily, in some societies we have made sure that compliance has a big function. Over the last ten years this has become more ingrained”.

But if it was the right call not to invest in Glaenzer in 2018, shouldn’t the same call have been made in either 2012 or later in 2015. He says the sentiment has changed a lot since then and that, more broadly, the ecosystem is “stunningly different” today.

“I think all participants agreed on the view there’s a difference between what happens in private and what happens in business.

“There wasn’t this thinking or discussion about it. It was just, with these conditions — they were concerned about drug use or another incident, and we clearly defined consequences for this — people accepted”.

(Glaenzer declined to specify what those conditions were as he says they were private matters, although one was that he undergo regular drug testing for two years.)

He says that everybody legally involved in Passion Capital’s first fund voted that he should remain a Partner. “There was not a single against vote,” he says.

But why didn’t he just resign at the time of the incident?

“In 2002, when I was on my break doing nothing, I watched 62 out of the 64 games in the World Cup in Japan and South Korea. Germany had a terrible team, it was a disaster, other than [goalkeeper] Oli Kahn, who brought us into the final. And this man made a mistake in the 66th minute and we lost the game. And we or rather he didn’t win the trophy. He said after the game, ‘and continue’. You have to accept that you made a mistake and you have to take the consequences. Don’t run away. And that is my fundamental belief”.

I suggest that by remaining in his position he took very few consequences, and that in almost any other walk of life a person with less privilege would automatically lose their job after being convicted of sexual assault.

“I’m struggling to find a correlation between having done a private mistake, where we all agreed this was not business related, this was in no way using power or money,” says Glaenzer. “It was a personal mistake which I on the spot acknowledged and accepted and apologised [for]. And I said from day one to my partners and the CFE [now the BBB], it is not my decision, I want to carry on doing this, but I will of course accept any decision. If people have a different opinion, I do understand”.

Glaenzer is almost certain that Passion Capital would not have survived had he quit in 2012 and says that doing so would have let his partners and investors down. With two multimillion dollar exits behind him and regarded as a dot-com poster child back in Germany, he was indisputably the biggest draw for Passion Capital’s original LPs.

“Do you run away or do you accept… and continue what you promised to your partners and to your investors? I went to families, I went to people and said, you know what, this is what I want to do, there’s going to be money, we are aiming for [and] have our own expectations of what sort of return a small venture fund should deliver, and then run away? No. I can understand why people think differently, of course. But I personally, in my value system, I can not.”

That’s not to say there weren’t business consequences for Passion Capital and on Glaenzer’s ability to carry out his job, which he says he “100 percent” underestimated. “I was not even thinking about business consequences. It was more about the private…” he says.

The fund was suspended for five weeks after the incident, as per the LP agreement and so a decision about his future could be voted on. His conviction and details of the sexual assault were widely reported in the British media and he says the perception of him understandably changed amongst some people in the tech industry. This resulted in a halt to public appearances and networking and he says he initially saw a 70-80 percent reduction in unsolicited pitches. Passion also lost at least one deal due to Glaenzer’s conviction.

“With every deal there was this awkward situation,” he says. “We always disclosed this to our founders before we signed the deal, and that is, on many levels, a very awkward situation. For founders and [for] us”.

From the outside, at least, I say that it feels as though Passion Capital quickly underwent a re-branding post-incident that saw partner Burbidge replace Glaenzer as the more visible face of the VC firm, which otherwise has always made a virtue of its openness, pushing initiatives like its ‘Plain English Term Sheet’ and making its investment terms public.

“It was a 180 degree change,” says Glaenzer. A change, nonetheless, that he says would have happened over time anyway.

“We used our respective strengths. The respective strength of Eileen [Burbidge] has been [there] from day one, even though I was probably doing more of the visible media. She was organising every single thing; she should become the face of the company… It was very, very clear because she is way more talented than I will ever be. It was known”.

So what’s next for Glaenzer? He gives little away but says he has spent the last few months quietly working on a couple of MVPs, including one idea he has fallen in love with. “My fundamental goal is I don’t want to have my kids being solely educated from American media and digital platforms,” he says.

More than anything Glaenzer says he is ready to embrace change: admitting that he had become increasingly unhappy working in early-stage venture and now very clearly a burden on Passion, he doesn’t dispute that a simple version of this story is that the events of 2012 have finally caught up with him.

On several occasions during the interview Glaenzer quotes a passage from the poem “Steps” by the German poet Hermann Hesse, which he’s handwritten across several sheets of plain white paper, revealing each line one page at a time.

He says he used the same poem to explain his resignation to members of the Passion team last week and also when he quit Recardo.de in 2000.

“‘A magic dwells in each beginning, protecting us, telling us how to live’,” he reads. “It’s a fundamental belief that this magic is in new beginnings.”